hello. you're watching "worldwide exchange." i'm russ westgate. >> hees are your headlines. >> on the brink. they're locked in a stalemate. >> and washington's budget jitters set global equity dollars lower with europe sending asia into the red. >> it's a fresh political crisis in rome. >> but sheanghai bucks the markt

trend in what could be its biggest free market experiment in years. >> announcer: you're watching "worldwide exchange" bringing you business news from around the globe. well, the u.s. government is on the brink of its first shutdown in 17 years if congress does not pass a stopgap spending bill by midnight. early sunday the house approved a measure linking funding to a one year delay of president obama's health care law. it would also repeal the medical device tax which helps pay for the law. the senate convenes at 2:00 p.m. eastern and will likely vote to strip those provisions sending the bill back to the house. it is then up to house speaker john boehner who could have members vote on a clean bill or one with new provisions. on sunday republicans and democrats continued to trade blame. >> here, unlock those doors, i say to harry reid, and come out and do your job. the senate must act.

they must, must act. we do not want to shut this government down. it's wrong, and we want to work and negotiate and get the job done. >> want to debate obama care, that's fine. people have strongly held views on both sides. but to hold hostage democrats and mainstream republicans until you get your way and hurt millions of innocent people across america is wrong. >> so that's the latest out of washington. the latest out of europe er equity markets are down. we're now into the session where we're at the low as well. last week the ftse 100 was down 1.3%. the xetra dax is down 1%. cac ka rant is down.

we could see the collapse of the coalition government led by he nrika letter. the italian banks are down 3.6%. it's ousted its chief executive after a hasty range board meeting yesterday. in a statement the biggest lender said the biggest investor carl messina would replace him. there were resignations of five ministers from the country's governing commission. now that has pushed up italian bond yields. we got to spreads of 300 bases points. italy is yielding 4.6%. we have been to 4.3. 10 year bond yields, the spread back below the 300 bases points. italian treasury yields are a safe haven flow.

ten year yields down 2.6%. last week down to 2.63 and spanish yields a little bit higher at 4 point poip 38%. rather mixed day for currency traders in the euro weaker against both the yen and the swiss frank against the dollar. flat 135. the dollar is also being pressured. the dollar yen is down a two week drop. the aussie dollar saw a two-week drop. sterling has been a beneficiary this morning. currently 1.6134. we've been up to 1.6180 this morning. that's where we stand right now in europe. let's bring you up to speed with the rest of the action in asia. lisa is with us. >> asian markets are worried

about disappointing data out of japan. china has a seven day holiday starting tomorrow. the nikkei ended lower but over 2% with the b.o.j.'s survey. a abe's tax decision is due tomorrow. the yen was trading 98 below the green back. china's pmi grew only slightly but it was revised down one point. meanwhile, hong kong, australia, and india see losses for more than 1%. now on to some big movers in japan. mizuho financial dropped 4%. but teppco continued to

outperform. its application to restart some undamaged facility helped convince regional banks. according to reuters creditors are providing 5.9% billion life line. the shares gained more than 2%. china markets bucked the down trend. some shanghai based companies continued to gain ground after launch of the program yesterday. wai gaoqiao. xinhua surged up 10%. >> thank you for that. joining us is a strategist at monument securities, mark. put the u. is ts. political newo perspective. >> markets hate politics.

unlike central banks decision, you never know quite what you're going to get. they always assume, given history, that some say it will resolve itself. they're now being faced with this prospect that positions are extraordinarily entrenched in the states. the difference between this and the '95, '96 situation is '95 bill clinton was in quite a good position to face down all the beginning gri gingrich demands. in this situation mr. obama i don't think has any friends on capitol hill, either in his own party -- >> we don't care about budgets. it doesn't stop the number of shoes that are selling or the bottles of coke people drink, does it? are we worried about it for what it means for the debt ceiling? >> we are worried about it for the debt ceiling even though the treasury says it will try to carry on paying things for quite a long time. i think we're worried about it is there doesn't seem to be any

movement. we went through all of this two years ago and they had an opportunity in the meantime to talk to each other. me we are at one minute to 12 yet again and yet again the u.s., capitol hill is unable to make a decision. that's the worrying signal. what everyone's used to in terms of the perception of the u.s.a. ell while europe is seen to be muddling through and coming out with compromises, in america it's the perception of everyone else, while we may not like the decisions, it's decisive. we have the body position that doesn't like to make decisions. there will be some sort of agreement even if it's a compromise one. it will probably put the issue on ice for a short while. unfortunately the time frames where we get these compromises are getting shorter and shorter and shorter and the positions aren't moving. >> so what's the damage then

that it can do? if we are going to get another 11th hour agreement and so far the market doesn't seem to be selling off. >> i think that's exactly where the interesting part of the market's perception's going to be. does it go, well, if the american government shut down for three to four weeks, it might deduct, say, 2% from gdp in q 4, but excluding government shutdowns everything else was all right. and that's a very positive spin. or does it go -- actually, this is bad news and we seem to be in a situation where the positive side will be we get taper forever. >> could we be in for a nasty surprise then? >> i think the risks are increasingly for a nasty surprise that not much does get done. >> there's a lot of data out this week or does that matter. >> if it gets published. >> even the eurozone pmi and so on? >> the pmis do matter this week. they have different points. will it look more like the

chinese one we saw this morning which was disappointing or the japanese one. will exports start picking up. in the eurozone will green chutes fade into autumn leaves. in the u.k. is the strength of the services data that we're seeing and the manufacturing data going to actually translate into decent hard data and in the u.s. is there any impact on the other hand of people anticipating this shutdown and saying that sends a very bad signal for america? >> well, we'll talk it out certainly throughout the show. staying with us, mark oswald, strategist at monument securities. give us your opinion. there should be lots of them this week. take part in our online poll this week. we're asking you how to trade the s&p 500 as a u.s. shutdown looms. head to trader poll.cnbc.com and cast your vote. straightaway you will begin to see the trend. you can have your say in

twitter, use #traderpoll and you can tweet ross or i. >> you can. don't miss out on that. got some data out of italy. producer points up 2% month on month. the year end rate falling .2%. the biggest decline in almost four years. the annual decline the biggest since 2009. plenty more to come on today's show. >> we're just full of good news today, aren't we? on today's show, cleaning graffiti, picking up rubbish. this is what i'm going to do in london for the rest of the week. cleaning graffiti, picking up rubbish and going to the job center for the rest of the week. those are the tasks for the unemployed under government proposals. we have the latest at 10:30 c.e.t. >> plus, german finance minister is talking about the green party. we'll have the latest from frankfurt in 30 minutes.

president obama says the new insurance exchanges created by his health care law will launch tomorrow. at 11:20 c.e.t. we ask if obama care can avoid falling foul? >> can the u.s. government avoid the first shutdown in nearly 20 years. we'll have the latest from washington. and you know i love this story. as the long awaited free trade zone launches in shanghai, find out whether it poses a competitive threat to hong kong. un eunice yun will be joining us live from shanghai after the break.

>> announcer: you're watching "worldwide exchange." welcome back. italian prime minister will hold a confidence vote in parliament on wednesday as he and the country's president scramble to save the government from collapse. it follows silvia berlusconi's withdrawing his party. yesterday the italian president said he would do anything to avoid going to the polls seven months after the election. >> translator: the president of the republic dissolves the

republic only if there's no chance of finding a majority. joining us from rome, claudia penzotti. how is this going to play out from now? >> reporter: ross, today is going to be an important day. berlusconi is going to try to persuade his party to stay out with him. it is the idea that there are dissidents to this party. some of the ministers, some of the five that were asked to step down, the five in the cabinet as well as others have made comments about their doubts going forward with this idea that bur lerlusconi has had on government. they want to postpone it so they can work to try to get more support. he needs 24 particle la mliamen

his side. he may get a majority. he probably will get a majority. the question is how strong will it be? how much longer can he hold out before this government needs to go to an election? clearly it's important to pass a new electoral law before that happens. it's important to pass a stability law by october 15th and another big step is, of course, not part of the government but part of time. on the 4th of october, the committee that's evaluating whether to send to parliament a vote on his senate seat if that goes forward as well. this could mean a future without the possibility of actively participating in politics for senior berlusconi. this is a crucial week for the italian government in general and for politics in italy. joining us is mark oswald

and he's saying hue we hate politics in the market. this has blown up much quicker than people thought. the question is can we get some kind of not a new government, can we get something that passes a stability law as claudia was saying and the electoral law on a case-by-case basis. can we muddle through here? >> right. i would say that was definitely possible. there's been a growing number of defect shuns. some of these have been very high profile including the deputy prime minister. if these defect shuns gain momentum, we can see a majority to support the current government or force berlusconi to backtrack. it's unclear if this new majority will be to support a limited time -- >> is that conceivable, berlusconi backtracking? >> personally, i think that's not likely. i think there's a deal on fiscal

policies on the table. the center left has been resisting. there's an ongoing debate on that. however, any deal i think would likely include ways to freeze the ongoing impeachment of berlusconi. there's a final vote. >> is that going to go? is that going to go? >> right. that's just not going to happen, i don't think. >> mark, you said we hate politics. we've seen italian yields rise today. banks being sold off. an election is not new for us. >> they're not new but this does look like a return to old form. 2011. in the current scenario where you're talking about defect shuns within the pdl, you are looking at this breakup of the

right which berlusconi, give him credit, he managed to unite the whole of the right. the question, it's biz zan thyme, is whether a more sustainable government can be formed. perhaps the most important thing is this electoral change. frankly under the current system they'll likely have the same outcome. >> fred der reek a. >> that's possible. they're talking about passing a budget. go to elections in early 2014. that's the question. can they lead the government in case the majority is too slim? >> are the stakes up too quickly by calling a confidence vote? could he have muddled through this with berlusconi?

he may not have all of the support of the party. >> would have been able to muddle through but not for too long. >> this had to happen? >> yes. the looming senate on berlusconi's impeachment would have been bad for the government in any case. incompetent stead of giving into the latest rounds of the pdl, latta decided to force them to show their cards. >> zooming out a little bit, what are all the implications of this political turmoil. what are the implications for the eurozone, fragile recovery? >> there's been some minor slippage that was recently shown by the september budget. the slippage is marginally limited to 2014. the real risk is the market pressure, perhaps to the levels that we saw in 2011, 2012 that could cause trouble in the eurozone. at that point the ecu can resort

to its buying program. >> let's go back to claudia who's still standing by. claudia, we're also looking at corporate movers out of milan today. specifically with antessa san palo. what can you tell us? >> reporter: it was planned as far as the exit timing. they decided to announce the resignation of the ceo of intesa. the markets were going to come out certainly in a very cautious state to say the least. so they got that information out. the stock is down not too, too much. this was a rumor that was circulating last month and the stock had suffered by 6.8% already on the news of that. he was seen as sort of more of an international manager,

somebody who was going to move the bank forward sort of away from old italian ways of managing banks and according to shareholders, this is not what they preferred. the long-time manager of the bank is sort of giving the ba bank -- going back to the old ways for the time being. other sectors, we're watching telecoms where the chairman of telecomutaile may step down. he wanted a capital hike. he didn't get it. telefonica has snepd and taken t operator. it's a very, very busy week for investors as they are looking for italy trying to grasp whether there is stability or not and look at the individual stories.

the banks are a big issue as we were saying. they are holding on to a lot of government italian debt. it's increased from $397 billion total that they are holding now of italian government debt. we have to watch the spreads and yields. it's an incredible time. this gets put in the past and they move forward. >> thank you so much. just more on that. san paulo is saying it's going to speed up the effect of the group's potential. basically what claudia was saying. meanwhile, politics also in focus in the u.k. prime minister david cameron is defending his government's mortgage security scheme. cameron talks about why he thought it was important to bring forward the help to buy despite the fact that it's going

to create a problem. >> i'm not going to stand in the way as people's dreams are trashed. that's why it's good news that we're bringing forward the help to buy scheme. i can tell you today that matt west, halifax are all going to be putting forward these products. >> this morning we have data out that said house prices are up 1/2 percent. at the same time, british chancellor george osbourne is due to address the conference this morning and will announce new plans for long-term unemployed to do community work or training to get their benefits. our correspondent is in manchester. >> the chancellor will use his speech to say after three long years the british economy is finally turning the corner. he will say the battle is a long way from being done. while the labor party last week lurched to the left politically, the tourists will be fighting to

try to persuade brittain that they are the business friendly party and able to plot this really steady course for the economy to come back. we are still below historical debates. the help to buy scheme has raised huge questions about whether the government is going to create an asset bubble that is dangerous and an unbalanced u.s. recovery. we have warnings from the imf and the business secretary, vince kamber. they've raised concerns because after all we still don't know until next week what these new powers that the bank of england has that is going to put a check on the help to buy scheme and make sure it doesn't fall foul of asset prices. the business community in the u.k. are also going to be asking, is enough being done on skills and immigration, on infrastructure spending and on business rates. this is going to be a conference full of politics.

we've got the headlines today this morning talking about the work to door scheme. this is the unemployed being forced to do community service. remember, this is a conference dedicated to hard working people and we're going to hear a lot about those rights, but the question is going to be the cost of living. will people have recognized the recovery in the u.k. how is that going to affect their pockets and the chancellor's going to have a lot of hard work to persuade people that the recovery is really benefitting them quite yet. now, mark, i saw you nodding your head a little bit and sort of chuckling at some of those things. what catches your eye about that? >> i think there's three things. all the issues to do with structural problems in the u.k. are never being addressed. this isn't just this government, it's serial governments for the last 50 years and they are a major issue and it's getting worse the more people don't do something. it's a classic balloon effect.

it goes expo tension nal. with the hope to buy is very good for them to talk about. we saw when we had the collapse in the whole borrowing in the u.k., it wasn't about aspirational, it's about actually affordability. and guaranteeing all of these things if basically someone is having to get a 95% mortgage and that represents if it's guaranteed by the government and that represents eight times earning, it's not affordable. yes, it may be playing into their aspirations, but in realistic terms you've still got this massive divide and really what needs to be done much more is something that focuses on the supply side. what we've got is a badly distributed population in the u.k. concentrated in the southeast. we need much, much more in the

way of new housing being built. that's where the housing should be. it should come on the social side. >> mark, stick around for now. more to come. we'll get more out of the u.k. as we do so, let's recap where we are with equities. just about decliners outpacing advancers. coming up later in the show, we'll be joined from washington, d.c., as the political machinations continue.

in august that's the highest since february 2008. consumer credit .6 billion which was the same of .6 billion in july as well. quick reaction from that from mark oswald who's still with us. as i say, it comes the same time as we saw the biggest jump in home track month-to-month in six years. we don't need to bring it forward. many people thought we should

scrap it. >> when you look at it in the longer term historical context, it's way off. anything we thought of as normal was 4 or 5 million. in the bubble it was higher. we're a long way from the bubble. there are some people who want to get on the housing ladders and others have mortgages and they're still trying to pay them down. so encouraging people to take on more debt when others want to have less debt is perhaps not the best idea. but this will definitely give a boost to mortgage lending as we go forward. >> nonresident gilts sales. >> yes.

the month-to-month gilts you shouldn't look a. neared doe mess sticks nor foreigners are infused. you're seeing that reflected. >> let's show you where we are with currencies. sterling in particular has been firmer. up to 1.6183 against the dollar. the dollar in europe weaker across the board. dollar yen is weaker. euro is lower. >> let's take a look at the bonds. they have plenty of risk events ahead this week so wouldn't be surprised to see some of these yields edge up. look at the ten year benchmarks, 2.61. holding very steady. the ironic part of this is worries over the debt ceiling would put the trust in u.s. bonds. at stake, it's a safe haven.

2.61, a little bit weeker. the ten year bond a little bit weaker. the ten year italian bond, we have seen it go up today. it's at 4.64. earlier today the spread between the ten year italy and german bond was 2.93. that is the widest so we continue to watch the debt space particularly as the political shakeup. we wait to see what happens. >> yeah, the confidence vote. the european equity markets, we are down heavily. corporate news we're following as well. german giant siemens says it will cut costs. 5,000 of the jobs will happen in germany. it's part of a $6 billion cost

cutting program. siemens currently down 2/3 of a percent in frankfurt. german chancellor angela merkel's promise not to raise taxes will be challenged this week during talks with the opposition spd party. we have more with annette wise beck. what's it going to take? >> that's the $1 million question. the new government is not really inside yet because what we are seeing right now in germany is exploration talks, not even coalition talks. what is going to happen is that the spd and angela merkel's party are sitting together and they are actually define iing we the red lines are. from the christian democrat part it is talks. we're hearing various policy

makers from angela merkel say no to tax hikes. at the same time the social democrats are insisting on hiking taxes. there is not really a lot of agreement between those parties. as well, the greens had a party convention. they are interestingly in their final statement when it comes to as well saying yes to those talks with angela merkel's party, they are not talking about taxes. so perhaps that's one indication according to policy analysis -- analysts, i should say, that the greens are a little bit more open to go together with angela merkel's cdo. so when it comes to when we are going to have a new government, last time coalition talks took six weeks and nobody really thinks that a new government will be in place before november. another area of battlefield or

another battlefield, i should say, is of course who is getting the finance ministry. according to the recent reports we are hearing that the social democrats are insisting to get the finance ministry. that would mean the end to the jobs. back to you. >> annetta back in frankfurt. portugal's austerity party incurred the wrath over the weekend. meanwhile, the opposition socialists performed strongly regaining power in lisbon with mayor antonio costa claiming a third term by a wide margin. the vote was seen as a key test for the 2-year-old coalition government. meanwhile, a government crackdown into the activities of the greek far right dom party intensified this weekend with the arrest of the party's leader and deputy. yesterday the man seen as the

party's number two turned himself in after a warrant for his arrest had been issued. on saturday police arrested the party's leader before charging him with belonging to a criminal organization. and lots of politics, ross. that's all we are talking about. austrians headed to the polls on sunday to vote on the country's parliament elections. they fought off a strong challenge from the euro skeptic right wing gaining just enough votes to form a new government. the centrists crossed the line with 50.9% of the vote. >> mark, politics, more politics, more politics. is there anything here that could make us re-evaluate our much more sang win view of the eurozone crisis? over the summer and last few months we've sort of put it to bed really? >> i say -- >> when i say we i mean investors. >> the german coalitions and

investors are the most important. what's happened in germany, greece, portugal are all significant. you could have predicted a lot of those outcomes. in germany i think what we have is a lot of positioning going on. the reason that they're talking about talking to the greens is they are basically using that as a bargaining chip with the spd. there is essentially two fundamental issues here. the spd doesn't want to go into a coalition and be bear hugged by merkel again. that's what they feel happened last time. the cdu/csu have to give ground on something they don't want to do. it appears at the moment, what they're saying is we won't give ground on the tax issues which means they're then going to have to go to the other issue, which is also not popular with the party bases, and that is on the minimum wage. merkel and cdu and csu are absolutely opposed to it. the spd are demanding that.

with the greens, the main issue would be sorting out energy policy. there is major reform needed particularly in terms of what the consumers are talking about. >> which is huge. >> which is huge. a lot of businesses are exempted. there are businesses being exempted which they're seeing -- >> i think a huge competitive disadvantage comes in terms of paying 60, 70% more than the americans. >> but it's all part of the changeover process. they're not going to go back on that. that's the key issue here. along with the negative message that was sent by the labor party here in the u.k., the energy sector isn't exactly coming up roses in europe. by contrast for the u.s. obviously where the whole shell gas revolution is making people feel very happy. >> okay. we're going to get back and talk more about this.

we're going to go to japan now where toshiba has decided to scale back on tv manufacturing. we have the story live from tokyo. over to you. >> reporter: hello. yes. electronics maker toshiba has announced it will be suspending two out of three operations. it will reduce by 2,000 workers by march 2015. this will reduce costs by $2 million. it hasn't decided yet which factory which will keep running. it's likely the keep the plant running in indonesia which runs the most ee fish lengthy. the company's trying to pull it back into the black by early next year. it's already shut down all of its tv production plants in japan and sold off its factory in mexico to a taiwanese firm.

toshiba sells tvs to 100 countries. the news made investors hopeful that the company's tv arm will become less of a burden and toshiba stocks went up temporarily during the trading day. that's all from nikkei business report. back to you. >> thank you very much. let's give our viewers a look at what else is on the agenda in asia tomorrow. the golden week holiday. the last week you ever want to travel. they are starting in china and hong kong tomorrow. china releases its official pmi gauge for august. the hsbc number disappointed. japan comes out with household spending and jobs data. the b.o.j.'s survey is due ahead of shinzo abe's hiking of the sales tax. the rba is expecting to hold study when it makes its policy decision. ross, you've been to china once, right? >> i have. >> you don't want to be

traveling there on a holiday. >> no. it's quite an experience anyway. >> there's a 250 kilometer traffic jam. >> yeah. i got stuck in one jam. a bit scary. i closed my eyes. still to come on the show, keep your eyes very much open. shanghai launches its long awaited free trade zone. >> but is the deal all it's cracked up to be? i have something to say about that. we'll discuss after the break.

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>> announcer: you're watching "worldwide exchange." welcome back. well, it is all the talk of asia. this much anticipated, much behind free trade zone in shanghai heralded as a new drive in china's reform. this is what you're looking at right now. it makes up 29 square kilometers. much anticipated as a way that would lead forward china's reforms. it's different than what's in the south of china. this is supposed to be focused

on the financial reforms. china's markets are closed. it's not freely convertible. even though the list was ten pages long, some of the details. first i want to show you what was promised. you'll notice, we'll give you a list here. it's very vague i have to say. much anticipated today, what beijing was going to say what was expected. we know that it is a test bed for new policies. it will focus on the service sector as well as financial sector in particular. also, less central control. that is a key one. what we got was ten pages which read a lot more like a bunch of restrictions. no market determined interest rates nor free flows of capitals, but the government did promise interest rate liberalization. the government has to go slowly but surely. you have a lot of analysts and onlookers doubting how far this will go. many are saying this is hugely symbolic. euni

eunice eun has been following this. >> we're heading to the shanghai free trade zone. it could say about the government's willingness to reform in china. >> reporter: the shanghai free trade zone is a 29 kilometer plot in the city. it combines a manufacturing area and a port. >> reporter: china has similar economic zones around the country, but this one is being billed as a test bed for financial reforms. this zone backed by the premiere is seen as the most important attempt at economic reforms since the government founded its first special economic zone in the south of the country over three decades ago. >> it is a test of economics. i believe that if shanghai officials can really implement and prepare well an experience, this is very important, very critical for china's next 50 years. >> reporter: the blueprint here at least in theory will allow less restricted foreign investment, more liberal

financial services and freer trading of the chie niece xuan. >> reporter: the government has used economic zones like this one to experiment with market reforms and to eventually spread those changes to the rest of the country. previous zones focused on manufacturing and trade, but opening the financial sector presents greater dangers to the economy. >> there are big risks because financial, the capital flow very quickly especially in a modern economy. we see so many crisis happening in different countries. they are all associated with the opening of capital accounts too quickly. i think this is a big lesson for china. >> reporter: and a reason the rules are still unclear and why significant changes appear to be years away. eunice eun, cnbc, shanghai. joining us from shanghai is

michael kobain. thank you for your patience. you've been waiting a while. thank you for that. you say at the moment this free trade zone is rather a symbolic gesture. why? >> yeah, i think that's right, because what we saw announced yesterday was really about the future. there will be things to come. what was actually announced is not significant in terms of an activity that a company can conduct today that they couldn't do yesterday. >> michael, you know, ten pages long and you see the words limited and only show up quite often. it's always been a matter of the future for china, slow and steady reforms. this is about the government giving up some control. do you think that's residential realistic in the next few years or will it take longer than that? >> this is an important point. we believe very strongly that there is urgency to financial market reforms in china. interestingly enough, the

rebalancing towards a consumption-led economy has everything to do with financial market reforms because a lot of the things that currently are restricted in terms of not having markets rates -- interest rates or whatever, these essentially are subsidies from savers to companies. until you create investment alternatives, capital flows, those subsidies remain in place. that really is the thing that inhibits consumption more so than almost anything zblels rig else. >> the hsbc pmi number was disappointing. the mini stimulus we saw out of china has run its course. we're still seeing a lot of reliance on investment. so is a free trade zone going to be -- is that going to be what it takes to make that shift? >> right. well, i mean, i think this

symbolic nature of the free trade zone is that the government is serious about these reforms. this gives them a sand box basically to play in, so to speak, because they can pilot some of these measures. that's always been the approach to policy making in china. try it out, pilot it, see what works, take what works and then extend it more broadly. so i think this at least demonstrates that they're serious about moving forward with the process, but it will take time. and these kinds of reforms are not things that can be implemented overnight. and they never were. it does take time. it's kind of an iterative process. >> michael, it's mark oswald here. i'm just wondering, the whole thing in china is basically as you sad, savers subsid diez all of the lending, if they're going to make it a more consumption led company, they'll still need that colossal pool of savings. they can't free it up.

that's the biggest obstacle without obstructs some of the things of moving a lot more of the rural population to the cities and also creating enough jobs in the cities to maintain that unemployment rate at the sort of level it is. >> right. so i think this is something that isn't very well understood, actually. in our view, the way to create a consumption-led economy is to create more consumers, and that more so than getting the current consumers to spend more money. and how do you do that? well, growing the service sector is very much an integral part of that because the service sector is more human capital intensive than investment-led growth is so that creates jobs. it creates white collar jobs. it creates demand for all of these people moving into the cities. ultimately as those people do move into cities their productivity improves and wages go up. you create more consumers and that's how china becomes more of a consumption-led economy. i think the efforts to free up

spending, you know, strengthening the social safety net, in our view those are necessary but not sufficient conditions to get people to spend more money. >> absolutely. and then just back to the free trade zone, michael. in terms of -- how realistic is it? a lot of folks were upset and there were no market interest rates or free flow of capital. that would create an arbitrage. how does it go forward? how can the beijing government ring fence from the rest of china? >> right. that is the big question that we're waiting for answers on because if you do create these arbitrage opportunities, i can imagine just an endless stream of armored cars going into and out of the zone full of cash. but that's clearly not what they're going for. i think, you know, the process of reform is a long one. this does, as i said, give them a place to try some things out. i think over the next six months

and certainly november will be a key point where we have the economic plenum in beijing. that will be probably one of these way markers where we see more announcements. >> absolutely. >> ultimately the fact that lee kaching is so strongly behind this is a very good sign. >> although he did not show up at the opening ceremony. thank you very much, michael. head of research china and mark oswald, strategist at monument securities. thanks for being with us today. still, there's more to come as the u.s. senators attempt to hammer out an 11th hour compromise. our next guest tells us what effect this could have on investors. ♪

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these are your headlines from around the world. on the brink. congressional leaders are locked into a stalemate within hours of the first potential government shutdown within nearly two decades. >> washington's budget jitters are sending equity markets lower following asia into the red. >> italian problems is pushing the bond yields higher. >> china launches a new free trade zone in what could be its

biggest free market experiment in years. >> announcer: you're watching "worldwide exchange" bringing you business news from around the globe. well, the u.s. government is on the brink of its first shutdown in 17 years if congress doesn't pass a stopgap spending bill by midnight. early sunday the house approved a measure linking funding to a one-year delay of president obama's health care law. it would also repeal the medical device tax which helps pay for the law. the senate convenes at 2:00 p.m. eastern and will likely vote to strip those provisions sending the bill back to the house. it is then up to house speaker john boehner who could have members vote on a quote, unquote, clean bill with new provisions. on sunday republicans and democrats continued to trade blame. >> here. unlock those doors i say to harry reid and come out and do your job. the senate must act. they must, must act.

we do not want to shut this government down. it's wrong, and we want to work and negotiate and get the job done. >> want to debate obama care, that's fine. people have strongly held views on both sides, but to hold hostage democrats and mainstream republicans until you get your way and hurt millions of innocent people across america is wrong. >> well, a government shutdown would set the stage for an even more contentious fight in congress over raising the u.s. debt ceiling. treasury secretary jack lew asas the u.s. will reach its borrowing limit in mid october. the dow was down at 70 points down 1.25%. the futures are 91 points below fair value. last week the s&p was down 18 points. it's, what, about ten points

below fair value and the nasdaq is 15 points below fair value. global equities have been weaker ahead of the u.s. starting the week. the ftse 300 down 100. the ftse was down 1.3% last week. currently off .7. the cac ka rant is down 1 pain pain -- 1.57%. it looks like we could be facing the prospect of elections. that's weighing on italian banks as well. we've seen the bond rates rise. intesa san palo is down. there was a resignation yesterday. the biggest lender in italy said his deputy messina would replace

him. it was expected cucchiana would step down at some point but it wasn't expected to happen quite so soon. as far as other assets are concerned, italian bond yields are higher at 4.63%. it's warding out to 300 bases points. that's the widest we've seen for some time. yields on friday were 4.47%. this is interesting. treasury yields down at 2.61%. we have been below 261 this morning so continuing actually to get safe haven flow from that. if we get prolonged government shutdown there will be less government bond auctions whilst the fed is buying. take a look at the currency markets. the dollar and the euro are both struggling today which means against each other they've canceled each other out.

1.35 is where we stand. the euro will close against the yen. yen dollar is the strength of 97.85 dollars. the lz dollar saw a little bit of weakness on pmis out of china. 52 revised down. we've been up to a fresh 8 1/2 month high at 1.6180. >> the trading day almost over in asia. xishuan is standing by. they're bucking the trend with the free trade zone ahead of the golden week holiday. >> the outperformer in today's trade. on the whole asian markets ended on a soft note weighed down by government worries and disappointing data out of japan. the nikkei tumbled 2.5%. while the boj's tankan survey

and abe's tax decision are due out tomorrow. that index gained 8% for the month. in china markets outperformed despite hsbc's september final pmi grew only slightly from august but it's revised down by one point from the flash reading to 50.2 hurt by weak domestic demand. most other asian markets lost ground ahead of the seven day holiday starting tomorrow. now on to some big movers in japan. the mizuho financial group tumbled. as for the big gainer, tepco's application to restart some undamaged facility helped convince regional banks and according to reuters a creditor is set to offer a $5.9 billion life line to the crippled fukushima daiichi power plant.

meanwhile, china markets bucked the trend. wai gjumped. we'll get the latest on the politics out of washington, wht it means. what would a government shutdown look like? more than 1/3 of the 2.1 million federal workers would be furloughed. it would force all of the closures of the national parks, national zoo, smithsonian and the statue of liberty. mail would continue. federal workers deemed essential would keep working without pay. critical services such as national security and air traffic control will go on as usual. social security and medicare benefits will still be paid but government-backed home loans could be delayed. another casual at this of a

government shutdown would be the release of government data. the bureau of labor statistics says all survey and other data operations would cease and nearly all of the agencies 2400 workers would be furloughed. but the bls says it's possible the data could be released if the white house budget office gives authorization and then the agency would bring in small staff on friday. every week cnbc is asking you to talk the trend by taking part in our online poll. this week we are asking you how to trade the s&p 500 as a u.s. shutdown looms. maybe it's a buying opportunity. head to traderpol.cnbc.com. you can have your say on twitter using #twitterpoll. >> don't miss out on that. go on to cnbc.com. joining us with his thoughts in new york, mcneill curry at bank of america merrill lynch. good to see you this morning.

thanks for joining us. politics is a hard one for investors because we can't judge it cleanly. technical analysis, we look at the numbers. what do you do with this story as an investor? >> what you should do whenever you're interested in the financial markets, first you take a step back and look at the bigger picture. it's easy to get caught up in the moment and look at the tape. if you look at the bigger picture the trend is for continued equity appreciation. if you look at the treasury market, we've been correcting to the down side and yield and up side and price for almost a month now. so definitely we have a lot of headline shock over the course of the next couple of days especially into friday with the payrolls. the trends are very much clear. that is for higher equity prices

and a continued correction in the u.s. treasury market to higher prices and lower yields. while, yes, there is a lot of headline risk at the moment, it's not doing a lot of damage to the larger trends. >> if you were on our poll you would say any weakness is a buying opportunity. what supports your theory about the trend is intact? >> just by the simple fact that we haven't broken any key supports if you look at the u.s. equity market. if you look underneath the hood and you look at brat and momentum, we're seeing momentum weakness. what's driving the market from a breadth perspective is still quite strong in the fact that most equities are rallying the breadth and new highs and lows. advancers versus decliners are quite constructive. >> mcneill, could you argue that that is a sense of complacency among our guests?

go back to 2011 and it was a really nasty surprise. a lot of volatility. could that not be approaching in the next few weeks? >> well, remember, back in 2011 actually we did start to see a fair amount of deterioration in many of the breadth statistics beforehand. so i would say that this is a little bit different in the sense that back in 2011 there were some warning signs transparent before we started to see that significant selloff into the august and september time frame. that is also an interesting point in the sense that if you think back to 2011 when we did have the massive amount of weakness, it was the end of q 3, beginning of q 4. certainly very strong volatility into the early part of q 4. that is usually the case in the sense that historically we tend to have seasonal weakness around this time. if you look at historically global equity markets you tend to see september as a very poor month if not the poorest month

of the year for equities. so we do tend to see corrections around this time of year. >> you talked about treasury yields. this morning in our row mean trade we headed below 2.61%. how much lower do you think they could go. ? >> i think we probably could push down somewhere between ten years' space to 255, 2 45rks 247 area. in there i would be looking for a base. again, i think it's worth while. if you take a step back and look at the big picture, there's two things that stand out here from the treasury market perspective. one, we have been in a bear trend since the summer of 2012. two, what we've been doing over the past month is correcting that bear trend. it doesn't look like we're at the start of a new trend to say the least. if anything, we're in a 3%, 250 area range trade which ultimately when it runs its course we'll see a resumption of a bear trend. in the meantime we'll push a bit lower especially if we see a bit

of a seasonal risk off or if investors start to get a little bit more cautious about global growth. but bigger picture, again, both the equity space and the treasury space say that we should see a continuation of risk-seeking behavior and continuation of global growth once this bumpy patch takes its course. >> stay there, get a cup of coffee. relax. we'll come back to you fairly shortly. still to come on the program. >> what impact will the shanghai zone have on business? we are going to cut through the detail and hype, ross. we are going to cut through the hype that has been building and building right after the break.

have been exploding over the

last few weeks or so in the chinese markets. yesterday it was announced to surprisingly little fanfare however given all the expectations. this is an overview here. it's a 29 square kilometer area that is going to enjoy more liberalization, more free trades. what exactly that means, that's still a little unclear. let's show you the list of what was expected and some pretty big promises here, at least things to look forward to. a test bed for new policies. this has been heralded as beijing's drive for reforms and could be landmarked. is it really the game changer? that still remains to be seen. service sector, free trade in the south focuses on manufacturing. shanghai trade expected to focus on services and opening up easing interest rate restrictions, broader rate of financial markets. eunice, i know you do not have

facebook or twitter so not complete control yet. those are two things that a lot of folks thought we were going to get, at least in the free trade zone. that hasn't happened. how is it playing out over there, the expectations and all of that hype? >> reporter: that's definitely not going to happen here. facebook and twitter is not allowed here in china. policies are pretty much the same here as anywhere else. basically people have been talking about questioning how free this free trade zone really is. there are a lot of restrictions on foreign investment, telecommunications. these restrictions are similar to the ones we see on a nationwide level. a lot of people have been questioning just how free it's really going to be. at the same time you can really understand why the authorities here are moving so slowly, because basically what we're seeing here is the government putting a rather old-fashioned concept for factories onto the financial sector. pretty much what people have done here in the past has been

to take, you know, a free trade zone, put a lot of goods, manufacture stuff, sell it over to europe and other places and then those free trade zones have been replicated across the country. now you could argue that those free trade zones haven't been very disruptive. for the financial sector it can be very disruptive. that's because financial flows move very quickly in large amounts and people are worried about what those risks could do to the financial sector. a lot of reason why a lot of people think that the government is going to move very, very slowly. any significant changes could take years to come. >> always slowly and surely, eunice, especially when you're trying to wrestle control from beijing or open it up. thanks so much for having us. ross, usually in singapore reporting on all of this. >> exactly. the interesting thing is maybe it will make shanghai more of a jump of investment into china. whether that has any

implications for hong kong. >> there's some debate in hong kong. you have them saying that it would massively hurt hong kong, but in the end i think because what we got yesterday for the free trade zone was so under what everyone else expect the that there's not as much worry. we'll take a short break. still to come, obama care is giving u.s. lawmakers a headache. how are health care providers fairing. as we do so, following the falls in the u.s. equities, looks like we're going to start off on the same tone. the s&p currently down 9 points. the dow currently down. more to come on "worldwide exchange." [ taps baton ] [ dings ] ♪ [ male announcer ] every thought... every movement... ♪ ...carefully planned, coordinated and synchronized. ♪ performing together with a single, united purpose.

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♪ the all-new 2014 lexus is. it's your move. president obama says the new online insurance exchanges credited by his health care law will launch on tuesday. the department of health and human services which oversees this says several activities such as insurance rate reviews would be unaffected by a shutdown. joining us now from cnbc headquarters, cheryl scolnick. mcneill curry is with us. cheryl, let's kick off with you. good to see you this morning. thanks for joining us. the reason we're facing a

shutdown is because they keep tacking obama care funding on to this budget care bill. what is the risk at the moment? how do you see this playing out? >> well, i think that it's hard to call that, but it seems highly unlikely that obama care will be prevented from taking place. i think that we'll ultimately see the implementation of the exchange as well as the expansion of medicaid in the opt-in states proceeding as expected. >> yeah. the -- as expected, what is going to happen, you know, through -- as we sort of play through this. there's a lot to go through. a lot of businesses have complained about the costs of it. what happens to the health care providers as we go through these different scenarios? >> the health care providers have already experienced cuts

before coverage, and that's been extremely difficult for them. there are a number of hospitals that are in great distress already before any additional cuts will take place over the next several years, and there will be more cuts. so it's very important for these hospitals to maintain their presence in their markets to receive the additional funding that will come with the additional volumes that are expected to come from covered patients. you have to see patients come instead of being no pay patients who maybe pay 8 cents on the dollar at best become full pay patients even at very low medicaid rates but preferably at higher exchange rates in order for these hospitals to maintain their viability. >> now, cheryl, maybe -- many people would agree that republicans even within the party shouldn't necessarily be tying such a high stakes game, the budget, nor the debt ceiling to concessions that they want on

obama care, but if they don't argue for it now, if they don't try to water it down and delay it, would they be able to and when would they be able to? >> only if the republicans in the white house and the senate control the senate. otherwise it's a complete blockade and we have the kind of gridlock that we see. >> so how does it shake out then? are we going to get a deal that's pushed through? are we going to get a budget that's pushed through i should say? do you expect this to hurt talks on the budget ceiling or the debt ceiling? i'm sorry. >> well, you have to remember that i'm a health care services analyst, not a government strategist, so this would be more my personal opinion, but it seems to me from what we've seen before, every time obama care has come up for a vote, we've seen the same scenario. it would be nice if our representatives in washington would finally understand that

pushing the government to the brink over something which is current law which has very little chance of being overturned with our current political structure is playing roulette of a very unfortunate type with not only our health care needs for the uninsured and for the viability of the health care sector but for the viability of our nation. >> mcneill, do you want to comment? >> from the perspective of how the markets are playing out with regards to the uncertainty in washington, i do think over the course of the next couple of days or week or so we see an increase in anxiety if you look at the vix which is a measure of sentiment or investor anxiety. we've seen a pretty decent breakout over the past 24 hours. investors are a bit uneasy surrounding political developments but also remember there's also things going on in europe as well, such as a political situation in italy.

i think there's a couple different head winds that are transpiring and pushing out markets beyond what we're seeing in washington. >> and just going back to you, cheryl. there is a plan on the table to push back the opening of sort of the health care exchanges for a year. do you see that happening? if so, what would happen? because the plans are supposed to start offering insurance by january the 1st. >> they are. so first of all i don't see it happening unless the president makes that a reality. barring a move by president obama to strike a deal that allows his signature plan to be extended or suspended for a year, i think these exchanges start tomorrow and coverage starts january 1st. mcneill -- >> if it were to be delayed, there are significant expenses already being made to make

coverage happen. those expenses are being borne by the insurance companies, hospitals, navigators. but the most important factor is that the companies, the health insurance companies, the hospitals, the medical device manufacturers, the pharmaceutical manufacturers have paid for this plan. these cuts have been significant and highly detrimental so just delaying it for a year is kind of the worst of all worlds. >> okay. interesting. so the republicans are sort of cutting their nose off despite its face it sort of sounds like. mcneill, quick question to you. if you're an investor outside of the u.s., say in europe, how do you position yourself? >> i mean, again, i think the first thing any investor should do regardless of whether they're domestic based or foreign based

is have some kind of a plan. don't get caught chasing the tape which you can do now. if you take a step back and say what is my investing period, what is my investing horizon, you begin with that and then you take a step back and look at the bigger picture. say what is the general trajectory and outlook beyond what we're seeing in the near term. i think from that perspective, the outlook for u.s. markets is still constructive. >> okay. thank you guys very much. that was mcneill curry. he's head of global technical strategy bank of america and cheryl schylnick. >> good to see you, cheryl. it's impressive. there have been 17 government shutdowns since 1976 ranging from 1 to 21 days. none has caused a market meltdown, none. >> that's good fodder for our pool. >> yeah, it is. still to come, as u.s. lawmakers dig in their heels,

the key sticking point is whether to tie this to the budget. >> which side will blink first? we're live from washington with the latest next.

hours to go before the first potential u.s. government shutdown in nearly two decades. washington's budget jitters sending global equity markets lower in europe. italian stocks are the weakest in italy. that's on the back of a fresh political process in rome. but shanghai bucks the market down trend as china launches a new free trade zone in what could be its biggest market experiment in years. >> announcer: you're watching "worldwide exchange" bringing you business news from around the globe. all right. if you've just joined us state side, very warm welcome to the start of your global traiting week here on cnbc. u.s. equities were hitting a two week low. futures suggesting we have to start off negative again today.

we are something like 88 points below fair value foft dow. down 1 1/ 4% last week. europe inequities have been weak as much of the global trading equities. the ftse 100 last week was down 1.3%. cac carant down. the ftse is the weaker. italian bond yields are rising as members of silvia berlusconi's party are resigning. there's a confidence vote in the next couple of days. it may see the collapse of the italian government if they can't garner enough support. there is a split in berlusconi's pdl. it's on a bit of a knife edge. italian yields, 4.6%. the spread is around 290 bases

points. we were up over 300 bases points. the widest we've seen. as far as currency markets, it has put pressure on the euro and dollar. the dollar index down 1/3 of a percent. the sort of levels we were around last week. the dollar is down against the yen. the euro is down. one of the beneficiaries has been the pound. we hit fresh eight month highs of the green back of 1.6180. >> all about politics. the senate convenes this afternoon in the u.s. to likely vote to strip out provisions in a budget bill passed by the house early sunday that would link government funding to a one-year delay to president obama's health care reform law. if that passes the measure goes back to the house where republican leaders have a big decision to make as a government shutdown looms at midnight. cnbc's john harwood is live in washington with the very latest. nice to see you.

are we headed for an imminent shutdown? >> there's still time to avoid one, and this is all about when republicans figure out that the hand that they're playing is not going to work whmpt do they fold that hand? do they to it before midnight tonight or do they do it after there's a shutdown? what's unusual about this fight is republican leaders are not in favor of the strategy that they're executing but they're doing it because they're getting pressure from the tea party that they've not been able to resist. the question is is it possible for them to in effect fold up the strategy, stop trying to extract concessions, pass an extension of government funding. is it easier for the speaker of the house, john boehner, to do that this evening or after you have the shock of a shutdown, market reaction, pressure from the business community, pressure from wall street. i still hold out some significant chance that it will

happen before midnight tonight. >> okay. stay with us, john. also joining us now is jim nussel group. office of the white house management and budget. thanks for joining us. john holding out some hope we get a last-minute deal done. do you think that might be the case? >> yes. i mean, part of it is because i've seen it work before. i've done it before. when you write as many budgets as i have and when you've seen the process work, both smoothly and sometimes not quite so smoothly, you know where the pressure points are. john is exactly right. there's still an opportunity here. it's starting to become very slim. john boehner only has a couple of things he can do between now and midnight in order to get this done and at the same time

appease those on the right. putting those votes together is going to be difficult. if he decides to go completely to the left in order to accomplish this, he puts his speakership at risk. it's an interesting dangerous time politically. most people are not going to necessarily find much drama in this. they're going to look at it and say this is a bunch of crazy republicans trying to shut down the government, but if you are watching this, there is a lot of political drama. there is a way to do this and i hope they find that path forward between now and the end of the day. >> what is the way to do it? >> first of all, they could pass a clean continuing resolution. that would be the extreme for john boehner because he would then work with dim kratz in order to accomplish that and his right would find a lot of fault with that. the other thing you can do is he

can take some pieces of the bills that have gone over which would again at first blush seem to the democrats nonstarters. he could take away the congressional exemption. he could put in just the tax reduction on medical equipment. there's a couple of things he could do that are kind of scaled back versions that would still allow full funding of obama care. it would nick at the edges. i don't know if he could put the votes together. would the senate buy it once it came over from the house. again, there's a lot of back and forth that could occur, but right now as john is probably observing, too, nothing's happening. no one's talking. back in '96 when we had a shutdown both parties were still at the table. both parties were talking. there was a lot of frustration but both parties knew what was

at stake, what policy decisions they were for. even within parties there's not much discussions. >> john, let's come back to you on that point. if no one is talking how on earth are we going to get any kind of deal? >> well, sometimes not talking and having the consequences become evident to people who are causing a stalemate helps break that stalemate. i remember, ross, when jim nussel was a young men of congress, john boehner was a young member of congress. they were pressing the republican conference, their own party, to have a more aggressive stance against the democrats, but the group john boehner is dealing with is so far beyond where they were. we're talking about the late 1980s, early 1990s. these are people who have disconnected what they're trying to do from any normal

legislative process. this was not preceded by a budget negotiation. they passed budgets but then they did not meet to reconcile them. this is about using the moment of a shutdown, the moment of a debt crisis to extract the repeal or undermining of an act that was passed. i think what's happening is democrats have managed to achieve complete unity on this. the senate is going to reject anything that the house sends over that touches obama care. i think the only thing left to happen is when is the moment -- i was talking with a republican member of congress yesterday who said we've got to break these members of the tea party, these 40 or so members who are pushing us to take this stance. the question is when do we do that? can we do that tomorrow? can we do that after a shutdown for a while? boehner can do it but it's going to be difficult and he's going to have to make a difficult

decision to confront them and say, you're not in charge anymore, i'm in charge and i'm either going to do this with democrats or i'm going to do this with republicans but here's what i'm going to do. what he's going to do is extend government funding. >> jim, when is the moment to break the tea party? >> two observations. john's exactly right. the difference between '96 and today is that back then i would tell you exactly what the policy positions that we were trying to achieve. i could tell you exactly what the budget looked like. i could tell you all of those kinds of policy issues that we were working for. today i don't see them. i don't know what victory looks like for the republicans. so if they get their way, what happens? because -- so that's what's a puzzlement to me, number one. number two, i think john's right, but this is the danger for boehner and you've got to

understand this is a difficult position. if he decides to go with the democrats and confronts the tea party members of his own conference, he may very well lose his speakership. you can't just confront them in an issue this salient and have no consequence. there will be a consequence if he decides to go over and work with the democrats and passion government funding. it may be that john boehner may not be the speaker if that happens. so that's why i say there's a lot of drama that could occur if, in fact, this day shapes out in a way that john just described. >> jim, john, good to talk to you both. john, do you want to add something briefly? >> yeah. i just wanted to say that jim nussel's right, john boehner would be risking his speakership. i think the key for him to survive this and come out on top and take control of his caucus is if the entire leadership team is with him, kevin mccarthy,

eric cantor, the entire whip operation. if they say this is the play that we've called, we're going to run this play and we're with the speaker, they can prevail. >> thanks for that, guys. good to see you, jim and john. talking the politics of the republican party never an easy thing. the latest fiscal fight, certainly investors a bit more on edge. we are starting the week off negatively. could history provide some clues as to how the markets may react before and after a political crisis? courtney reagan is live at the cnbc headquarters with more on this. courtney. >> reporter: good morning to you. it is interesting we are in this pickle again. it is tough to precisely quantify how much down side risk there would be with the looming battle over raising the debt ceiling. analysts say historically any drop in the market would likely be temporary. that could be good news for the markets. 1995 to 1996 the s&p 500 index

fell nearly 4%. it did rise more than 10% over the following month once the government got back to, would. in the summer of 2011 when congress fought over raising the debt ceiling cutting the u.s.'s aaa debt rating, it took five months to recover. recently when lawmakers flirted with the fiscal cliff last december the dow fell more than 400 points or 3.1% between december 18th and 28th of the last year. after congress averted the cliff with the deal on new year's day, the dow soared. there are several sectors that could feel the impact of a lengthy government shutdown. a recent goldman sacks report said that companies that derive 20% of their revenues from the government. lockheed martin gets 97% of its

sales from government contracts. you don't think about your neighborhood garbage plan. the u.s. farms out a lot of its back office support work to the private sector. among the biggest i.t. and equipment providers, cisco systems, generates 22% of its sales from washington. centene is top on the list relying solely on the u.s. government for its sales. health care stocks may not be as impacted as the other sectors, but that is a whole other can of worms and another story we're going to be following in the coming days and year to come. back to you. >> that gives you an indication of how wide rooechk these consequences can be of all of this political bickering. it's not just happening in the u.s. politics in italy, the italian coalition government is on the

brink and will be in the italian capital rome next.

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claudia, we saw stocks down 2 12 1 2 1/2%. very fluid situation. what is the latest? >> it is. the market has improved a bit as you were mentioning since the start today. it seems to be looking more like it is believable that latta may be able to pull together a majority and keep going forward with this government. that did not seem likely just a few days ago. he's actually going to this confidence vote on wednesday rather than tuesday which gives us the indication that he believes he can talk to some of these ministers and some of these parliamentary members of the pdl that could actually give latta support in order to move forward on some important parts of laws that need to be passed in order to change the electoral law, in order to pass the

stability pact, all of it is that is very necessary for italy. the spread was higher by reaching 288 points and now is slipping a bit. so giving us the idea that the market is also betting on that. there are meetings today with the party leaders of the house and senate and at 5:00 silvio berlusconi is meeting with his party. the big day is wednesday for the confidence vote. >> a lot can happen between now and then, right, claudia? thank you so much. well, wall street remains on edge. we're just going from political crisis to political crisis. washington of course inching closer to a shutdown. >> is there an opportunity in the standoff for investors? most shutdowns haven't had a huge market impact. we'll talk about that when we come back.

investors. mark, okay, with all the eyes on washington, how are we going to get through this? >> yeah. i mean, it's definitely going to be an ugly day today. i think we'll see the s&ps continue some weakness down. i wouldn't be surprised if we sold off 20 some odd handles. where you'll really see the evidence is in the vix. it finally woke up on friday catching a bit of a bid towards the end of the day. traders thought, oh, my gosh, this might actually happen. i think that's really where you're going to see how worried wall street is, if we see the vix move from 15 1/2 up to 18 or even 20 could be in the cards over the next couple of days especially if things back up. >> one to 21 days, none of them had any huge impact on market.

>> yeah. if you look statistically, any real selloff because of a government shutdown is almost always a buying opportunity. you'll wait -- the neat thing is you can actually wait until they sign a deal. typically once they sign a deal the market will get a pop but there's a lot of follow through after that. the one time where we didn't get a pop and we didn't actually see the vix selloff after a deal was signed was august 2011 and we know what happened after that. so my general approach is i don't even need to buy ahead of some sort of deal. i can buy after the deal and play the momentum up. if one really wants to get in ahead of time with the vix, likely to pop toward 20. i think an out of the money put selling strategy could make some sense. i think we have a shot at 1600 if this thing goes bad. that is the level i would sell at. >> have a good day there. that's the latest from chicago. that's it from "worldwide exchange." "squawk box" is coming up. >> we'll see you again tomorrow.

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dwil bert will be our special guest. let's get to our top stories this morning. we have a lot to talk about. the house passing a measure sunday that would delay obama care for a year as part of a deal to keep the government running. the senate is expected to kill that bill. if a new bill is not passed by midnight tonight, nonessential government agencies and programs will shut down. we'll have more on this story with john harwood. we have a fresh political crisis in europe.